Intuit Inc. (INTU) Earnings Call Transcript & Summary

Thank you for being here for the afternoon session of the Citi Technology Conference. I'm Steve Enders, part of the software research team here. And with us for this session we have Marianna Tessel from Intuit. Marianna, very happy to have you here today.

Thank you. Glad to be here.

Yes. I guess maybe just to start, I think everyone has some exposure to you, 3 years at Intuit. But maybe you can just talk a little bit about your path to now becoming the head of the SMB Group at Intuit?

Well, thank you for that. So first of all, nice to meet everybody, and actually, I've been at Intuit for 7 years. And I started at Intuit as leading engineering for the business units where I'm in right now and did that for like a little bit over a year. And then I became a CTO for Intuit for 5 years and helped with modernizing our technologies, getting to a platform, embarking on AI more decisively, GenOS, GenAI, all of that. And then I became the General Manager. Before that, my background is in various technology companies: VMware, Ariba, things like that. I'm also a Board member at Cisco so I understand big companies and how they work.

Yes, yes. I think that's great to hear. I do want to talk a little bit about the segment name change. I think it's now called the Global Business Solutions segment, if I'm correct. So maybe can you just kind of walk through what that name change reflects and maybe how the business and the vision changes as a result of this?

Yes. We recently changed the name to GBSG, Global Business Solutions Group, and really almost -- well, every word in there matters. So first of all, Global is to signify that we are global and being clear about that. The second thing is Business because we are after businesses of different sizes, from solopreneur to mid-market to small business to mid-market. The third is Solution is that we're actually offering a platform and a set of solutions, so we're an end-to-end platform. And we're a Group, so here you go, GBSG.

All right. No, that's great. I know Intuit, big focus on 5 Big Bets. How does that strategy drive the GBS segment? And how does that fit into the own investments that you are focused on to leading that group?

Yes. We declared the 5 Big Bets 5 years ago, actually, when I was a CTO, and I'm very familiar with them, and there, we're actually fueling our growth across the company. But let me kind of start one by one. The first one is with kind of a strategy of speed to benefit. And in there is deploying data and AI and increasingly GenAI to get our customers to benefit quickly. The second is connecting people to experts and making sure that expertise is available across our platform end-to-end to our customers and making that available. Then the fourth Big Bet is about being the center of small business growth. I left Big Bet 3 because it's more targeted towards our consumer segment, but Big Bet 4 is about being the small business -- the center of small business growth, and that comes in different ways. First of all, with making sure we understand all the jobs to be done across the platform, making sure that with Mailchimp, we can help customers get, grow, and manage customers, and with our Money solutions, we are helping customers with their money. And last is, of course, mid-market, last Big Bet is really focused around mid-market. And actually, all these areas, we invested throughout the years and now we continue using that to kind of fuel our growth.

Okay. No, that's great to hear. I do want to ask about just the demand environment. I think everyone thinks of Intuit as being a pretty good bellwether for what's going on in the SMB world. So can you just talk about what you're seeing today, how you're feeling about the relative health within that segment, and maybe what you're seeing relative to some headwinds that other people have called out in the SMB segment?

Yes. So you're right that by looking at our data, we're actually able to see how small businesses are doing. And we do see, I would say, overall, there is no big news this year and that it's pretty stable. We do see actually increase in revenue and profitability for small businesses, which is nice. However, cash -- the cash balance is a little bit more difficult for small businesses and is down about 7%. Other positive sign is across our payroll offerings. We see that hours worked has been increasing, so more activity in employment. All of that is positive. We can also see that some sectors are -- have been doing better than others, and sectors such as insurance or constructions, these have been growing and healthy sectors. And other sectors still, I wouldn't say struggling but they're still having a hard time, I would say, recovering from pre pandemic, and that would be real estate or lenders. Those are the ones -- IT services. So those are still not growing at a pace that we see some of the other sectors.

Okay. No, that makes complete sense. Maybe kind of dovetailing off of what you're seeing from the customer side but more connecting it to the consumer side of your business, I know that there's been some synergies in place between your segment and in the consumer side. Can you maybe just talk about what the interconnections and synergies with that group look like? And maybe how has that evolved over the past few years?

Yes. What we have seen is, I'm actually going to highlight business tax is an area where we see the synergies. So in business tax, what we have done lately is actually we offer business tax for our QuickBooks customers with QuickBooks Live. And we've seen tremendous excitement from the market on this so we're going to continue doubling down on that and offer surfacing it to more customers, offering more of that. So that's like an area where we can take a TurboTax experience and offering it to small businesses. I will actually say, interestingly, maybe one of the things is that the audience is not aware, and as kind of I can share from being a CTO is that we actually built everything on one platform. So often, the synergy might not -- you might not see it in like a direct connection but it's there and it allows us, one, to develop these more connectivity across our platform, but also taking something that really worked in one place and then apply it to another. I will give the example of expertise is that we started with TurboTax Live several years ago, and actually, we built this virtual expert platform, which is a platform that allows us to onboard experts and then help them serve, with AI, our customers really, really well. And as we built that platform, we built it in a way that is across our Intuit platform if you want, and then what it does is that it helps us serve QuickBooks customers. And QuickBooks Live offering is actually based on that platform. So we already know from the get-go as we start scaling that, that it is going to scale, that experts are going to be effective and productive on it, that they're going to use some of the most advanced AI-based technology, whether it's matching and how we match expertise, whether it is summarizing calls and things like that, being able to, during the conversation, surface the right thing to say for our experts. So this is the kind of way in which we also see synergies across our platform that actually helps our customers is that we really have one platform that helps us serve Intuit and helps us scale and move offerings across our products.

I do want to touch a little bit more around what you did in the past on the tech side and how you think about the AI opportunity moving forward. But I think before we get into that, I do want to ask a little bit about some of the changes in the outlook and some of the evolution we saw from this past earnings call. I think maybe for one, I want to start on just how you're thinking on the growth equation has shifted between ARPC and volume here moving forward. I guess are there any examples of shifts in the execution to reflect that change? And I guess what led to the decision now that this is the right time to kind of lower that outlook?

Yes. So our overall growth, that kind of remained at 15% to 20% as the long-term guidance, so that has not changed. But our formula has evolved a little bit in that we are increasingly understanding that we are going to go after a higher -- we have an opportunity to go after higher ARPC. And as a result, we are just being more, like what you say, lowered our customer growth, and we put it in the 5% to 10%, which we thought will be better matching. Because as you look at higher ARPC and some of the customers we're going after, there's actually less of these customers, like tip of the pyramid, there's less customers. So that felt like more matching but there's higher ARPC that we can go after there. And an example that I gave in one of the meetings was that if you look at -- in mid-market customers, so what I -- so let me just actually go back and say, we go after the entire -- our plan is to go over the entire pyramid. And what we are doing is going after solopreneurs, small businesses, and mid-market. And those customers have similar needs so they're really well served by a platform. But they're different in ways. In mid-market, obviously, small businesses need more than a solopreneur, and then mid-market needs even more. And when you're a mid-market, you more likely need a payroll solution. You more likely need capital. You more likely need our FinTech solutions, Payments, Bill Pay. You need more sophisticated reporting. So the needs are similar but they're also evolving across those segments. And as we look at the segment that is mid-market, there's less customers there but there's higher ARPC. And in fact, if you look today, even today, we have 3x the ARPC for mid-market customers than other customers within our ecosystem. So that's definitely a very compelling market for us, and we believe we serve it well and we can serve it better, and that's what we are after. We're going to continue to increase our customer base across all 3 segments. We're going to continue going after solopreneurs as well.

Okay. I guess as we're thinking about maybe some of the volume shift there, I guess does this maybe change how you think about the size of the addressable market for SMB or the sustainability of new logo growth moving forward? Like is there a view of saturation maybe coming into that lower end of the market?

I don't view this as like saturation. One thing that I kind of want to share is that there is constantly new businesses being created and it's ever evolving and ever growing, and we see us play in there. I would say at the lower end, maybe one thing to pay attention to is that we have -- crystallizing who we want to go, being clear on who we want to go after. And I believe we still have like a great opportunity there to grow actually pretty massively. But we were -- several years ago, we attempted to go after what we call self-employed. And we're being clear of what type of self-employed we want to go after. And we want to go less after the gig workers that might be not needing use of much of the software and also tend to churn very heavily. And in fact, we had an offering called QuickBooks Self-Employed that was built on a different stack. And what we are doing is we actually released last year a solopreneur offering that is built on a QuickBooks stack that is targeting really solopreneurs. Maybe it could be a food truck, somebody like who just want to run a food truck, or like a designer, an architect, different type of like solopreneurs. And what those customers, they tend to start small but actually do evolve. In fact, like some of our mid-markets started as solopreneurs. So we believe this is a customer that's within our profile, and we are pivoting to target that customer with an offering that we think is excellent for them with the right price point for them. So we're still going to acquire and we're going to lean on that segment. So we see still a growth for us across the pyramid, and we're tackling it in a very deliberate way, understanding what is that portfolio of customers that are going to start with us and grow with us or stay with us in what's right for their business. But we look at a lifetime for these customers and how they might evolve and they want -- we want them to stay on our platform.

Okay. That makes complete sense. Wanted to ask about mid-market and some of those capabilities, but I guess, before going there, I do want to ask about price. And I think one of the questions that we get from investors is how do you think about the sustainability of leveraging price as a driver of growth? And I guess, at what point do you see pushback from customers that they aren't able to digest the price increases coming through?

Yes. I've actually been asked quite a few times about price today, and I just want to maybe answer this like, first of all, explain that we do have principles by which we decide on price and we decide on price increases. And fundamentally, at the end of all of this, what we look is what we say price to value is that we continue releasing features, we continue adding value, and we want to make sure that we price to value. Another thing that we have is that we have different offerings that are right for different type of customers. We talked about solopreneur at the lower end, and we talked about QuickBooks Advanced and mid-market at the higher end, right? So we believe customers can find the right home at our platform as -- because we have multiple offerings. This allows us, obviously, to be clear and flexible with like how we think about price. We're putting value in higher SKUs and we are priced for them. So with that in mind, as we looked at price to value, we saw we have an opportunity in the last few years, and we looked at price increases and then we've done the same this year. When we do that, we actually have a rigorous playbook that we are working off to go after these price increases. That starts from communication, starts with bringing our ecosystem of accountants and others to help us with the change. It's then like making sure we monitor, we answer customer questions. And I want to say the good news is that we rarely see any negative impact from these price increases. And we actually know, especially on the higher end, that we still have room to grow with price in those, and we constantly innovate in those areas. So I would say, yes, there is part of a strategy, price to value, and we still have room. We don't feel like we topped off, and that's kind of also what we have been monitoring throughout the years of the reaction of our customers.

Okay. No, that's great to hear. Maybe shifting gears a little bit. I do want to focus on the mid-market strategy because it feels like that is a big emphasis and focus for you all right now. I guess how far up can Intuit go today up into the mid-market? And I guess what are kind of the unlocks that help your platform move into the next tier of customers and capture the next, I don't know, 100- or 500-, 500- to 1,000-employee kind of customers?

Yes. So traditionally, we define mid-market as 10 to 100 employees. But this is really just a way to express and be able to capture, what we say, a bigger customer, a more complex customer. So really, the way you should think about it, that mid-market is about going after bigger, more complex customers, and we use the number of employees as approximation. But we don't view it as a ceiling. We're not saying, "Oh, you can use our products but you have 102 employees so we're not going to sell to you," right? So it's just more a way for us to gauge our TAM and to gauge kind of what customers we should sell to. So that's about kind of where we are tackling. And as we looked at our mid-market customers, I would say we focus on 2 areas. First area is to make sure our product really fits those customers. And we do it in -- and the second area is go-to-market. But let me start from product. On the product side, we look at making sure that we understand, and by the way, increasingly, we always talked about our platform, and increasingly, our strategy is be the platform in which businesses run their business daily and where we help them increase their revenue or profitability. And as we look at that platform, we understand what are the different jobs to be done for small businesses. And we are going after the different tasks, the different jobs that small businesses need to do in order to run their business. And that's kind of our portfolio of services is the way to think about it. And as we look for mid-market, we see 2 phenomenas. One is they need more depth across the jobs to be done and they need more modules. They need more sophisticated features. Like for example, they need bulk type of features, like they want to do things in a batch. They want to do things like several things at a time. They want to set recurring versus like onetime. So we see more of that. They need more sophisticated reporting. And then we also look at how we connect the platform for them more seamlessly. So for example, the reporting can really yield much more insight for them beyond what they might see today. So understanding their needs, there, sometimes they have -- we discover new modules that they need. We recently added benefits, like we heard from customers -- this is through partnerships, by the way. We heard from customers this is something that they need and we went ahead and partner and added that. So deepening each one of these jobs, connecting the dots with seamless transition, integration across these, and that's on the product side. And then on the go-to-market side is really about how we're approaching those mid-market customers and making sure that we actually have a go-to-market that's right for them. They want to have more of a relationship with us. We built a sales team that can go after this mid-market customers and can sell to them proactively. We actually call customers which we haven't done before. Those are the kind of things we are doing on the go-to-market side, from marketing to sales to then services and support and making sure we have the support structure that they need with account management, with more dedicated support. Those are the kind of things that we're hearing from mid-market customers on the go-to-market side that we are investing in to make sure we can really be helpful for these customers.

Okay. That makes sense there. I guess maybe focusing on the product side there. I guess what are kind of like the key areas in the road map that you feel like still needs to be done that can help you expand and execute on that mid-market opportunity? Like are there certain gaps or as you kind of already put it, you've kind of already addressed some of those, but what are kind of the further unlocks that will help you on that move upmarket?

Yes. One of the things we heard from customers is around multi-entity is they can do multi-entity today with our product, but they ask for a solution that is more out of the box and make it seamless. And those are the kind of things that we build and we're building. And that's actually a platform play because then they need it across the platform. They ask for more sophisticated reporting. An example would be show me my profitability and other things. So those are the kind of things they're asking. They're asking on, and I mentioned some more on the workforce management, things like benefits, so we created that. And then like in the features themselves, on bill pay, for example, our more advanced billers weren't like being able to have bills, like work on more bills that are like more volume. They need certain like features there to help them with basically more volume of bills, how they pay for them, different kind of vendors, how they connect to their systems. So we're building those features that we have heard from our customers about.

That makes complete sense. I do want to ask about the AI investments that Intuit has made, and I think as former CTO and largely leading that initial effort, it would be great to get your perspective on this. So can you maybe talk about the underlying AI stack? Where does Intuit differentiate versus others? And I guess, what parts do you own versus maybe leveraging third parties for as part of your AI stack?

Yes. I always enjoy AI questions but I need to be careful not to [ ramble on, sorry ]. Somebody ring the bell if I am. So joking aside, one of the things that we declared about a year ago is GenOS, which is a way for us to really offer GenAI to our customers. And what we've done is we created that operating system that allows us to plug in different LLMs and then allows us also to easily connect to services we had in our system, so you can not only use an LLM but you can use it within a workflow very easily. So a lot of companies today, they have a hard time refactoring their platform to use with GenAI. And what we have done is we said, oh, here is like a wrapping or here is like a way to take a traditional service and make it available for like GenAI. So you can easily create GenAI-based experiences but also use the depth of your platform with different modules. So that's kind of GenOS. So what it allows us is to use different LLMs in the market, and we use actually a multiple of them. We do use OpenAI LLMs and a few of them. And we also have our own LLM based on Llama that we have developed. And we use those LLMs in different setups depending on the different -- like the best LLM for the need. Importantly, one of the things that's nice about GenAI is also build privacy and security into Intuit. And then like it just makes it easier for our developers to develop experiences super fast as opposed to really worry one feature at a time of what do you do about security, what to do -- it's like all built in to actually use a tool that we call GenStudio that allows them to develop. And all this goodness that I told you, it's already there. They can select the LLM, they can connect to services. We have the privacy, security is all built in. And actually, we've seen dozens of experiences already in production. Hopefully, that wasn't too technical.

No, that was great. I guess the question probably is you have all this functionality, how do you monetize it? Where do you see the use cases to potentially pull that in and drive revenue for both Intuit and also for the SMB group specifically?

Yes. We have multiple ways of monetizing. The first one is we actually believe this helps us with attracting more customers. One scenario that where we deployed GenAI and we're scaling some of our experiences, they're already at scale but most of them are still like in different phases of scale. But we deployed GenAI in an experience that allows us to simplify onboarding and to just kind of like ask for a minimal amount of information, and then with that, just being able to pool the rest of the data and kind of speed up onboarding. Those kind of things help us with acquisition of customers. Also customers knowing that we have GenAI and that we're competitive is attractive to customers and they want to use us. So the first thing is increase the number of customers. The second thing is discovery of services and ARPC. Very concrete examples is with GenAI, we're actually using our data to surface at the right moment of need, very personalized information for our customers. Like for example, we could see a customer actually being on the transaction page on our platform. And we could, with GenAI, surface the idea that they could use help or we could see that their cash flow is low. And we can say, do you want to connect to an expert to actually get some help because we see your cash flow is low or like you're about to hit payroll. So we can use personalized data and service the customers at the moment in need, very specific suggestion for help. We actually, again, started deploying that. I gave several examples with QuickBooks Live, but we do it for other things like payroll, capital, et cetera. And that really helps us expand ARPC, as an example. Of course, this is, like I mentioned, also a gateway to live and ability to connect to live experts. And last, we also look at direct monetization. We already have GenAI for higher SKUs on Mailchimp. And we're also going to continuously explore direct monetization with GenAI.

Okay. So in your view today, it's really about driving cross-sell and upsell and get people to adopt more of the Intuit product set?

Correct, as well as we do see direct monetization, we think that would be something we can do. And Mailchimp already doing that. And then we could -- we see it as something that helps with overall adoption of our ecosystem to begin with.

Okay. No, that makes sense. I do want to ask about Mailchimp. I think there's been a lot of talk around the combined CRM product there. I guess kind of where are we on that cross-sell opportunity, that potential in that kind of bigger combined product coming out?

Yes. Mailchimp does play an important role for us. And the reason for adding Mailchimp to our portfolio still exists. It is about getting, growing, and managing customers and not what Mailchimp helps us do. It was a very important component for our customers because it was very important for our customers to manage and grow their customers and we needed to add that. We didn't have that. So it's a critical part. It also helps us bridge the data between Mailchimp and QuickBooks. And we've been building a CRM. We had to go and make sure we fixed some foundational things in Mailchimp, but we actually also developed things like the revenue intelligence engine, which we just released with Mailchimp and is going to be available for QuickBooks. And what that allows us is proactively seek revenue opportunities for our customers. We see a great engagement of customers with it. And then like you mentioned, CRM and making sure that Mailchimp is part of our overall platform and easily can be used by our customers, discovered by our customers, and we're extending the functionality to actually include CRM in addition to marketing and the features it has today.

Okay. Yes, that makes complete sense. I do want to ask a little bit on the Live opportunity. I guess, how do you kind of view that for what that means for the SMB segment? I think it's maybe a little bit better understood on the consumer side of the house. But how do you view that and the impact that has on the SMB side?

Yes. It's interesting because actually being a small business sometimes could be scary and terrifying. And what we -- actually, when we talk to small businesses, they actually tell us that the biggest thing they have is lack of confidence. They are not sure if what they do is right. They're not sure what other businesses are doing, and actually having somebody to talk to is critical for small businesses. We identified that as an opportunity. Like I said, we have the same platform so we're able to try it out. And it's actually been a feature that really resonated with customers. We had to find the right kind of angle. But just this year, for example, we went for do-it-with-me, which basically means that this is not just full service. We can -- you are still in the driver's seat but we can do something with you. And we're expanding and expanded to more services, like for example, I mentioned business tax. And with all of this, we actually saw quadrupling of our -- of the uptake of Live. So we're very optimistic of where this is going. And Kim is looking at me. Did I quote the wrong number? Tripling, okay. I was wondering, is it tripling or quadrupling? Okay, it's tripling. Scratch that. Tripling, which is still over tripling of our QuickBooks Live adoption, and that's been very encouraging. And by the way, the retention on that is also very high, so it's promising. It's very promising.

Okay. No, that's great to hear. I think we're getting close on time. I think we've got about a minute left here, but I do want to ask about, there's a lot going on in the portfolio today, a lot of investments you're making. Let's say we're at Citi Tech Conference in 5 years. How does the GBS segment look different in 2030 versus where we're at today? And where do you see the most kind of opportunity or potential based on what you're investing in?

Yes. What I'm working on with the team is exactly kind of what I shared. It's that full platform, end-to-end platform for small businesses, mid-market businesses to -- for businesses to run their business every single day where they can increase their revenue and profitability. And hopefully, what I want us to -- what I'm working towards is having that platform adopted. First of all, we fully complete that. It's adopted by customers from solopreneurs all the way to mid-market, and we continue to be the de facto must-have platform for these businesses. So hopefully, you can see a lot of growth coming from that from our strategy. I'm very bullish on it.

Okay, awesome. Well, I think we're out of time here. But Marianna, want to thank you so much for being here. I think we all learned a lot about the GBS segment. So we really appreciate having you here.

Thank you so much for having me.

Thanks, everybody.